They are all interconnected

World Economy

The world economy is a worldwide economic whole formed by the interconnectedness and interdependence of the economies of all countries in the world. It is based on the international division of labor and the world market, and integrates the economies of various countries around the world through various forms and channels such as commodity circulation, labor exchange, capital flow, technology transfer, and international economic integration. Other economic aspects are organically linked. In modern society, the production and life of any country in the world cannot be completely closed to itself. It must rely more or less on the production of other countries, on international division of labor and international exchange. It is this intricate economic relationship that constitutes the world economy as a whole. Therefore, the world economy includes both international economic relations and the economic relations within the countries that constitute this economic whole. Such economic relations involve not only the field of production, but also various fields such as commodity exchange, capital flow, and technology transfer.

Economic Globalization

Economic globalization refers to the world’s economic activities transcending national boundaries and forming a global economy through foreign trade, capital flows, technology transfer, service provision, interdependence, and interrelationships. range of the organic economic whole. Economic globalization is one of the important features of the contemporary world economy and an important trend in world economic development. The process of economic globalization has already begun. Especially after the 1980s and especially in the 1990s, the process of world economic globalization has greatly accelerated. Economic globalization is conducive to the rational allocation of resources and production factors around the world, the global flow of capital and products, the global expansion of science and technology, and the promotion of economic development in underdeveloped areas. It is the basis for human development and progress. Performance is the inevitable result of world economic development. But it is a double-edged sword for every country, presenting both opportunities and challenges. In particular, developing countries with weak economic strength and relatively backward science and technology will face more severe risks and challenges in the face of fierce global competition. The urgent problem in current economic globalization is to establish a fair and reasonable new economic order to ensure the fairness and effectiveness of competition.

Natural resource endowment theory

Natural resource endowment theory refers to the fact that countries specialize in products in different sectors due to differences in geographical location, climate conditions, natural resource reserves, etc. The pattern of production. There are four main reasons for the international division of labor based on the different natural resource endowments of countries. The first is the division of labor caused by the "haves and have-nots" of natural resources. This presence or absence determines that some countries want to produce this product, while other countries cannot produce this product at all and can only rely on imports. The second is the division of labor caused by "more and less". Although some countries have relatively small reserves of natural resources, their needs are very large. Although other countries have relatively large reserves, their needs are relatively small. This causes some countries to be like countries where domestic production is less than domestic needs. Provide some resource products. The third reason is mainly economic. The fourth is strategic reasons. Although the natural resource endowment theory is intuitively reasonable, it is only suitable for explaining the kind of international division of labor based on natural resource conditions or geological and geographical conditions for product production. Therefore, the natural resource endowment theory can only explain part of the phenomenon of international division of labor.

The theory of endowment of production factors

The theory of endowment of production factors is a theory that uses the differences in the abundance of production factors in various countries to explain the causes and structure of international division of labor. The production of various products is an organic combination of production factors. Factors of production mainly include land, labor and capital. The abundance of factors of production varies across countries. Some countries have relatively abundant labor force, and some countries have relatively abundant capital. A country wants to make full use of all its production factors, which creates a tendency for each country to specialize in the production of certain products. Countries with relatively abundant capital tend to produce capital-intensive products, while countries with relatively abundant labor tend to produce labor-intensive products. As a result, an international division of labor based on different degrees of factor abundance has formed. The production factor endowment theory also has its limitations. First of all, this theory still assumes that there is no difference in the quality and quality of production factors across countries. In fact, such differences exist; secondly, the abundance of production factors is not fixed. Therefore, the endowments of production factors are not fixed.

Theory of incomplete international division of labor

The theory of incomplete international division of labor refers to the fact that the transfer of production factors between departments causes changes in the factor productivity of each department, making the international division of labor incompletely specialized. theory. The transfer of production factors between departments reduces factor productivity, making it impossible to achieve specialization in the international division of labor. Because a reduction in factor productivity will prevent a country from giving up the production of another product. It can be seen that the international division of labor means that two countries produce two products at the same time. One country focuses on the production of a certain product, and the other country focuses on the production of another product. The significance of the theory of incomplete specialization in the international division of labor is that it points out the degree of international division of labor and explains that the reason for this incomplete specialization is that with the transfer of production factors between departments, this type of input flows into the production factor department. The productivity of factors of production decreases. The international division of labor based on opportunity cost was first proposed by American economist Gott Habler. This theory reveals that in reality most countries are in an international division of labor with incomplete specialization. Yet this is one aspect of the problem. The inflow of factors of production in certain sectors may lead to an international division of labor tending toward complete specialization.

The theory of division of labor by agreement

The so-called division of labor by agreement means that when the production efficiency of two countries in producing similar products is similar, they each specialize in the production of one of the products through mutual agreement. Achieve economies of scale and create an international division of labor. The so-called productivity is relatively close means that the productivity of factors is relatively close. From an intuitive point of view, if the productivity of the two countries is relatively close, it will be difficult to achieve international division of labor. If an agreement is reached, the two countries can achieve specialized division of labor and achieve economies of scale. The theory of agreement division of labor was proposed by Japanese economist Kojima Kiyoshi. He pointed out that even in extreme cases where the two countries do not care about differences in comparative advantages, economies of scale and agreement on division of labor can still be achieved. This agreement division of labor has two characteristics. First, on the surface, there are no obvious technological differences or factor productivity differences between the countries concerned. Second, international division of labor and economies of scale are achieved through agreements. Fundamentally, this international division of labor is neither based on natural endowments. It is not based on technical differences, but on the international division of labor triggered by the agreement.

Theory of Monopoly Advantage

The theory of monopoly advantage was pioneered by Stephen Hymer, a professor at the Massachusetts Institute of Technology in the United States in the 1960s. He believes that the motivation of multinational corporations to make direct investment stems from market imperfections. First, companies in different countries often compete with each other, but market defects mean that some companies are in a monopoly or oligopoly position. Therefore, these companies may make profits by owning and controlling multiple companies at the same time; second, in the same industry, different companies have Business capabilities vary. When a company has an advantage in producing a certain product, it will naturally find ways to maximize it. Both aspects illustrate the possibility of transnational corporations and direct investment. Heimer further pointed out that from the perspective of eliminating market barriers in the host country, the advantages of multinational companies have a compensating effect, that is, they are at least enough to offset the advantages of local enterprises in the host country. Heimer's mentor Kindberg further extended this and listed various possible compensation advantages, such as trademarks, marketing skills, patented technology and know-how, financing channels, management skills, economies of scale, etc. The theory of monopoly advantage theoretically created a new research field focusing on international direct investment, making the theoretical research on international direct investment begin to become an independent discipline. This theory not only explains the horizontal investment made by multinational companies in order to exert their monopoly advantages on a larger scale, but also explains the vertical investment made by multinational companies in order to maintain their monopoly status and transfer some processes, especially labor-intensive processes, to foreign production. Therefore, it has a great influence on the theoretical development of foreign direct investment by multinational companies.

Product life cycle theory

Vernon, a professor at Harvard University in the United States, has an influential and unique theory on international investment and multinational companies. Vernon believes that products present cyclical characteristics in the market, and this cycle can be roughly divided into three stages, namely, product creation stage, maturity stage and standardization stage. In the first stage, due to the small elasticity of demand for new products, cost differences have little impact on the company's choice of production location. Therefore, domestic production is generally concentrated, and the demand in foreign markets is basically met by exports. In the second stage, the product technology gradually matured and began to expand. Therefore, under the pressure of competition, it occupied major foreign sales markets in the form of foreign direct investment.

In the third stage, as market access barriers have been weakened, companies are facing new competitive pressures, and production location is determined more by cost differences. Since developing countries are relatively lagging behind in technology, the production of standardized products will be transferred to low-wage, labor-intensive countries and regions to open up local or export to traditional consumer markets. This theory more accurately describes the product strategies of American multinational corporations before World War II and the early post-war period. Moreover, it also provides important inspiration for the development of the theory of foreign direct investment by multinational corporations. It introduces dynamic analysis to the study of the behavior of multinational corporations; demonstrates the interaction between supply and demand in the direct investment process of multinational corporations; and illustrates the importance of location factors in the development of transnational business theory through the demonstration of production location decisions. sex.

Market Internalization Theory

The market internalization theory, first proposed by Buckley and Carson, attempts to further clarify the interests of multinational companies in foreign direct investment based on the theory of monopoly advantage. Buckley and others believe that: 1. The external market mechanism fails, which is mainly related to the nature of intermediate products (such as raw materials, semi-finished products, technology, information, goodwill, etc.) and the uncertainty of buyers. Buyer uncertainty means that the buyer does not understand the technology and the seller keeps the product confidential and is unwilling to disclose the technical content, so multinational companies are willing to vertically integrate. We are willing to invest abroad both horizontally and vertically. 2. Transaction costs are affected by various factors, and the company cannot control all factors. If the market is internalized, that is, the market is established within the company, internal transfer prices can play a lubricating role. 3. Market internalization can rationally allocate resources and improve economic efficiency. International direct investment tends to high-tech industries, emphasizes management capabilities, minimizes transaction costs, and ensures the experience advantages of multinational companies, all in order to achieve the above requirements. Because the internalization theory comprehensively absorbs the reasonable core of other theories, it can explain most of the motivations for foreign direct investment, and thus contributes to a further in-depth understanding of the causes of multinational corporations and their foreign investment behavior.

International Production Eclectic Theory

A widely influential theory on international direct investment and multinational corporations proposed by British economist Dunning. According to Dunning's explanation, the specific form and degree of development of multinational corporations' foreign direct investment depend on the integration of advantages in three aspects. First, if a foreign enterprise wants to produce in another country and compete with local enterprises, it must have ownership advantages (also known as corporate advantages, monopoly advantages, competitive advantages, etc.), and these advantages are sufficient to compensate for the additional costs of foreign production and operations; Second, when an enterprise transfers its advantages across borders, it must consider two transfer channels: internal organization and external market. Only when the economic benefits brought by the former are greater than the latter, foreign direct investment is possible; third, Location advantage means that enterprises will invest and produce abroad only when they can obtain the best benefits by spatially transferring the intermediate products produced in the home country to other countries and combining them with the country's production factors or other intermediate products. The international production eclectic theory has a guiding role in the operation of multinational companies. It encourages corporate leaders to form more comprehensive decision-making ideas and use an overall concept to examine various factors related to ownership, internalization advantages, location advantages, and many other factors. The interaction between factors can reduce errors in corporate decision-making.

Theory of Comparative Advantage

The theory of comparative advantage was proposed by Kiyoshi Kojima, a professor at Hitotsubashi University in Japan and an economist in the mid-1970s. Kojima Kiyoshi believes that the economic conditions of each country have their own characteristics, so the theory based on the United States' foreign direct investment cannot explain Japan's foreign direct investment. He believes that the success of Japan's foreign investment is mainly due to the fact that investing companies can use the principle of international division of labor to transfer domestic departments that have lost their advantages to foreign countries and establish new export bases; they can also focus on developing those industries with comparative advantages domestically, so that The domestic industrial structure becomes more reasonable and promotes the development of foreign trade. From this, he concluded the "Japanese-style foreign direct investment theory", that is, foreign direct investment should be carried out sequentially from industries in which the investing country has been or will be at a comparative disadvantage, that is, marginal industries. Summarizing his comparative advantage theory, the following three aspects can be highlighted: 1. It abandons the view of "imperfect market competition" and proposes to develop practical foreign investment strategies based on the specific conditions of the investing country. 2. Abandoned the view of "monopoly advantage", emphasized the principle of comparative advantage, and continued to maintain the traditional principle of international division of labor.

3. Abandoned the view of "trade substitution" and proposed a "trade creation" development strategy. This theory that explains foreign direct investment from the perspective of international division of labor is obviously unique compared with other theories, and it is undoubtedly an impact on traditional international direct investment. Kojima Kiyoshi's distinction between Japanese-style foreign direct investment and American-style foreign direct investment, his elaboration of the outward transfer of marginal industries, and his proposed policy proposals only reflected and explained the early stage of the 1960s and 1970s. The status of Japan’s foreign direct investment in different stages. This theory can neither explain the U.S.’s foreign direct investment activities that were at their peak at that time, nor can it fully explain the rapid rise of Japan’s new foreign direct investment situation after the 1980s. It can be said that this theory has strong characteristics of the times.

Multinational corporations

Refer to large-scale international enterprises composed of economic entities from two or more countries and engaged in production, sales and other business activities. Also known as international companies or multinational companies. The prototype of multinational corporations first appeared in the 16th century and grew after the 1870s. It has become an important content, manifestation and main driving force of the internationalization and globalization of the world economy. The main characteristics of multinational companies are: 1. Generally, there is a large and powerful company in a country as the main body. Through foreign direct investment or the acquisition of local enterprises, it has established subsidiaries or branches in many countries; 2. There is generally a A complete decision-making system and the highest decision-making center. Although each subsidiary or branch has its own decision-making body, each can carry out decision-making activities according to its own business fields and different characteristics, but its decisions must be subject to the highest decision-making center; 3 , generally arrange their business activities based on global strategies, seek markets and reasonable production layouts around the world, specialize in production at fixed points, and sell products at fixed points in order to maximize profits; 4. Generally, because of their strong economic and technological Strength, rapid information transmission, and rapid cross-border transfer of funds, etc., so they have strong competitiveness in the world; 5. Many large multinational companies have strong economic and technical strength or in the production of certain products. advantages, or have varying degrees of monopoly on certain products or in certain regions.

The floating exchange rate system

means that the exchange rate of a country's currency is allowed to rise and fall freely according to changes in market currency supply and demand. In principle, governments and central banks of various countries do not impose restrictions or assume any responsibility. obligations to maintain exchange rate stability, such an exchange rate is a floating exchange rate system. The formal adoption and widespread implementation of the floating exchange rate system began after the dollar crisis further intensified in the late 1970s. Floating exchange rate systems can be divided into free floating and managed floating according to whether the state intervenes in the foreign exchange market. In fact, no international market implements complete free floating today, and major developed countries all intervene in the foreign exchange market to varying degrees. There are currently many forms of managed floating exchange rate systems, which can be divided into independent floating and joint floating, and some floating exchange rate systems that implement pegged policies. Under a floating exchange rate system, changes in a country's exchange rate are affected by a variety of factors. In addition to economic factors that often play a role, political and psychological factors are also included. The main advantages of a floating exchange rate system are to prevent the impact of international hot money and avoid the outbreak of currency crises; it is conducive to promoting the growth of international trade and the development of production; it is conducive to promoting capital flows, etc. The disadvantage is that it often leads to fluctuations in the foreign exchange market, which is not conducive to long-term international trade and international investment; it is not conducive to the stability of the financial market; the IMF's supervision of exchange rates is difficult to achieve, and the imbalance of the international balance of payments remains unresolved; it is also detrimental to developing countries. The country is even more disadvantaged.

Customs union

A customs union refers to the mutual elimination of tariffs and other measures with the same effect as tariffs between two or more countries by reaching an agreement. And established an economic integration organization with independent foreign tariffs. The main feature of the customs union is that the member countries not only eliminate trade barriers and implement free trade, but also establish unified external tariffs. The establishment of foreign tariffs means: 1. It avoids the problem that free trade areas need to be supplemented by the principle of origin to maintain the normal flow of goods. Here, what replaces the principle of origin is the erection of "external barriers" to treaty. In this sense, a customs union is more exclusive than a free trade area. 2. It transfers the "national sovereignty" of member states to economic integration organizations to a greater extent, so that once a country joins a customs union, it loses the right to independent tariffs.

A typical customs union in reality is the European Economic Community established in 1958.

Committee of 20

The abbreviation of "Committee on Reform of the International Monetary System and Related Issues". An advisory body established by the International Monetary Fund to study issues of international monetary system reform. A series of practices of the G10, that is, members of the Paris Club, on international monetary and financial issues have aroused dissatisfaction among developing countries. In particular, the decision of the Group of Ten to readjust currency exchange rates on its own in 1971 caused the vast majority of developing countries to suffer heavy losses. Therefore, at the request of these countries, the resolution to establish the "G20" was passed at the Third United Nations Conference on Trade and Development in May 1972, and stipulated that developing countries should account for at least 9 seats. In September of the same year, the International Monetary Fund formally established the Committee of Twenty in Santiago, the capital of Chile. In addition to the members of the G10, its members also include Australia and nine developing countries. Its mission is to formulate plans for reforming the monetary system for adoption by the International Monetary Fund. The establishment of the Committee of Twenty broke the long-term monopoly of developed capitalist countries in the international financial field. However, there are many internal contradictions and no substantial progress has been made. In June 1974, the Committee of Twenty came to an end after passing a 12-point interim currency reform plan. Its activities will be continued by an interim committee composed of ministers from the above 20 countries. The committee effectively became a decision-making body.

Triffin’s Dilemma

The famous American international finance expert and Yale University professor Robert Triffin made a famous assertion: No country’s currency can serve as an international reserve asset. To adapt to the objective needs of international solvency eventually led to the collapse of the international monetary system. In 1957, he expressed doubts about the future of the dollar's exchange for gold under the Bretton Woods system. He pointed out that the huge changes in the reserves of various countries in the second half of the 1950s caused the United States' gold reserves to flow to other countries. If this situation continues, it will eventually weaken the appreciation of the dollar. confidence. With the government stepping up intervention, the policy goals of independent sovereign countries are not consistent, and it is difficult to coordinate the monetary policies of various countries and maintain the convertibility of the US dollar. If the United States corrects its balance of payments deficit, gold production will not be able to fully meet the needs of world reserve growth based on the official price of gold. If the United States continues to maintain its international balance of payments deficit, its external debt will increase significantly and far exceed the ability of the U.S. dollar to exchange for gold, resulting in a gold and U.S. dollar crisis. This is the famous "Triffin's Dilemma." It reveals the inherent and irresolvable contradictions in the Bretton Woods system with the "two pegs" as its core. The ten dollar crises from the 1960s to the early 1970s and the eventual collapse of the Bretton Woods system confirmed the correctness of Triffin's assertion.

Special Drawing Rights

A reserve asset and unit of account created by the International Monetary Fund that represents member states’ rights to use funds in addition to ordinary drawing rights. It was created in September 1969 at the 24th Annual Meeting of the International Monetary Fund to solve the shortage of international reserve assets. It started as a unit of account with gold as its value. The gold content of each unit was set at 0.888671 grams, which is equivalent to the U.S. dollar. It is allocated proportionally to member states' shares in the International Monetary Fund. The special drawing rights allocated to member states is only a book asset that can be used as an international reserve asset of member states to repay loans from the International Monetary Fund and to repay balance of payments deficits among member states. But it cannot be exchanged for gold, nor can it be used as a real currency for general international payments, so it is also called "paper gold." In 1974, the SDR was decoupled from gold and was instead valued according to the currencies of 16 major developed countries. Since 1981, it has been simplified to be valued according to the five currencies of the five largest exporting countries from 1975 to 1979. These five currencies are the US dollar, the mark, the franc, the Japanese yen and the pound. The 70% non-repayment period of Special Drawing Rights is also what makes it different from ordinary Drawing Rights. Although the SDR has been adjusted many times since its establishment, it still has its shortcomings: 1. The number of SDRs issued is limited, and its proportion in the entire foreign exchange reserves is very small. Until 1983, it only accounted for the entire foreign exchange reserves. It accounts for about 4% of the reserve. Therefore, if it is used as the main reserve asset, there will be a problem of insufficient international repayment means. 2. The allocation of special drawing rights is unbalanced. It cannot meet the needs of most developing countries to balance their international payments.

3. The Special Drawing Rights is only a unit of account of the Fund. It can only be used for international settlements between governments. It cannot be used as a means of circulation to make direct payments in international trade and financial transactions. Therefore, its role is as follows: Big limitations. 4. As the main international reserve asset, the Special Drawing Rights is artificially stipulated by the "Jamaica Agreement" and is a fictitious world currency. It neither has value like gold itself nor is it backed by the country's economic strength like the US dollar. Once the international If economic and political relations undergo drastic changes, they may become useless paper. Therefore, at this stage, it can essentially only serve as a supplement to international reserve assets, but cannot replace the entire international reserve assets.

Group of Ten

Also known as the Paris Club. Established in November 1961. The member states are the United States, the United Kingdom, France, the Federal Republic of Germany, Italy, Japan, the Netherlands, Canada, Belgium and Sweden. Originally established at the Paris Conference under the General Agreement on Borrowing by the International Monetary Fund to raise $6 billion to resolve the reserve currency crisis, its activities have since expanded. Since 1964, Switzerland has participated in activities as an associated country and became a full member on April 4, 1984. The Group of Ten countries has a decisive influence on the decision-making of the International Monetary Fund. The representative group is responsible for specific activities and submits relevant reports to the finance ministers and central bank governors of the ten countries.

Free trade area

It refers to an agreement or treaty between two or more countries to eliminate mutual tariffs and other measures that have the same effect as tariffs. International Economic Integration Organization. In addition to having most of the characteristics of a free port, it can also attract foreign investment to set up factories, develop export processing enterprises, allow and encourage foreign investment to establish large commercial enterprises, financial institutions, etc. to promote the comprehensive and comprehensive development of the economy in the area. The limitation of a free trade area is that it can lead to distortions in the flow of goods and tax avoidance. If there are no other supplementary measures, third countries are likely to ship goods to member states of integration organizations that have lower tariffs or trade barriers, and then transfer the goods to member states that have high trade barriers. In order to avoid such distortions in the flow of goods, free trade area organizations have formulated the "principle of origin", which stipulates that only "products of origin" from free trade area member states can enjoy the free trade treatment granted to member states. Theoretically, when the value of a finished product produced within the territory of a member country accounts for more than 50% of the total value of the product, the product should be regarded as a product of origin. Generally speaking, the more third-country imports compete with products produced by free trade area member states, the higher the value-added content of products produced within member states. The meaning of the principle of origin indicates some exclusivity of the free trade area to non-member countries. A more typical free trade area in reality is the North American Free Trade Area.

***Same market

It refers to the mutual elimination of tariffs and other measures with the same effect as tariffs through reaching an agreement between two or more countries. Establish an economic integration organization that has unified external tariffs and eliminates restrictions on the free movement of labor, capital and personnel on the basis of free movement of goods among member states. The main feature of the *** market is the free flow of goods, services, capital and people among member countries. The free flow of goods and services refers to the complete freedom of trade in goods and services; the free flow of capital means that the governments of member states cannot interfere with direct or indirect capital flows between them, nor can they set any restrictions on such capital flows. obstacle. The free movement of people means that residents of member states can live and look for job opportunities in any country or region within the same market. Compared with the customs union, the independent market is a higher-level economic integration organization. Each member state not only ceded to the "Communist Community" the right to protect trade in goods and services, but also ceded the right to intervene in the flow of capital and people. In this sense, the degree of market integration in the same market is higher. In reality, a more typical homogeneous market is the "European Unified Market" that was implemented after 1993.

Economic Union

Economic alliance refers to the reaching of some kind of agreement between two or more countries, not only to achieve the goal of sharing the same market, but also to Achieve coordination of economic policies among member countries on the basis of a common market. The distinctive feature of the economic union is that on the basis of market integration among member countries, it further realizes policy coordination to ensure the smooth operation of market integration.

This kind of policy coordination includes coordination of fiscal policy, coordination of monetary policy and coordination of exchange rate policy. This kind of policy coordination fundamentally contributes to the smooth operation of the commodity market, capital market and labor market, and to a large extent eliminates certain adjustment directions or inconsistencies in the degree of adjustment of the economic policies of member states' governments, giving rise to market integration. interference with normal operations. The economic union is an economic integration organization with a higher degree of economic integration. Countries participating in this kind of integration organization must not only cede intervention in commodities, capital and labor from time to time, but also hand over the main policy tools of government intervention or economic regulation to the supranational international economic integration organization. Some integration organizations go a step further and achieve monetary union. In reality, a typical economic union is the "European Economic Community".

Trade Creation Effect

The so-called trade creation refers to the mutual elimination of tariffs and other measures with the same effect as tariffs among member countries of the International Economic Integration Organization, resulting in their mutual between the expansion of trade scale and the improvement of welfare levels. We assume that there are three countries, namely country A, country B and country C. Before country A and country B formed a customs union, country A imported commodity A from country C, which sold at a lower price, but not from country B. Now Country A and Country B have formed a customs union. Since Country B's A goods are re-exported to Country A, they do not pay import duties to Country A, while Country C has not joined the customs union and has to pay tariffs. Therefore, Country B's A goods are in The selling price in the market of country A is lower than that of country C, so the scale of trade between member countries A and B expands. At the same time, residents of country A enjoy the benefits, or “welfare”, of imported goods at lower prices.

The trade diversion effect

refers to the expansion of trade scale among member countries due to the elimination of tariffs and other measures with the same effect as tariffs among member countries of the International Economic Integration Organization. , especially the "change in trade direction" caused by trade between member states replacing the trade between some member states and non-member states. The main static criterion for a country to participate in an international economic integration organization is to weigh whether an integration organization will bring greater trade creation or trade diversion. If the trade creation is greater than the trade diversion, the country can join; if a country changes from participating in If the trade diversion received from an international economic integration organization is greater than the trade creation, the country should not participate in the integration organization. Generally speaking, if an economic integration organization's trade creation is greater than trade diversion, its attractiveness will be greater, and vice versa.

Big market effect

The first important effect provided by the International Economic Integration Organization to its member countries is the "big market effect". The so-called large market effect refers to the larger-scale or capacity market provided to the enterprises of member countries after member states remove trade barriers with each other. This large market creates the effect of realizing "economies of scale" in production for enterprises. The effect of economies of scale encourages the establishment and growth of large enterprises, while discouraging or even eliminating small enterprises, in order to improve the utilization efficiency of internal resources of the integrated organization. From the perspective of a member state, the large market effect helps to eradicate the "small but complete" approach to forming a self-sufficient economy within the country.

Competition Effect

The second effect provided by the International Economic Integration Organization to its member countries is the competition effect. In the case of a country, the main domestic industrial sectors, such as the high-tech sector, the heavy chemical industry sector, etc., will form a certain degree of monopoly. This monopoly is not conducive to the formation of domestic competition to a certain extent, and these sectors are not conducive to the formation of domestic competition. When maintaining long-term stability, there is a lack of competitive pressure and thus a lack of motivation for technological progress. After the formation of economic integration organizations, monopolies in various countries became competitive enterprises in a larger market. For the survival of the enterprise itself, it must improve technology, expand production scale, and strive to achieve economies of scale within the global market and occupy the entire market. Therefore, economic integration organizations inject impetus into top-level competition among enterprises, which is objectively conducive to the expansion of production scale and technological progress of individual enterprises.